It’s not too late to “catch up”

It’s not too late to “catch up”

For many workers, turning 50 means the start of the homestretch for retirement savings. But if you are 50 or over, here is an important retirement savings strategy that can help to relieve some of the stress this planning can bring and give your savings a boost as you approach retirement: catch-up contributions.

Catch-up contributions allow workers age 50 and older to save more in a retirement plan than the annual imposed savings limit. You can make catch-up contributions at any time during the calendar year in which you will turn 50, even if you have not yet reached your 50th birthday, allowing you to sock more away before retirement. This is a benefit whether you’ve been saving over the course of a long career, or got started a little bit late. These catch-up contributions are structured by the IRS to help people nearing retirement give their savings a little extra boost.

While you may have heard of catch-up contributions, only 15% of eligible plan participants take advantage of them, according to an analysis by Vanguard. We realize that most people that don’t take advantage of the catch-up contribution have not maxed out the non-catchup annual limit. However, there are some people who are not aware of this provision. Whether you’re enrolled in a 401(k), 403(b), or an Individual Retirement Account (IRA), you could take advantage of this increased contribution limit. After all, having a few extra dollars lining your retirement nest egg is never a bad thing.

Where to Start?
The most important thing you can do at any age to achieve your retirement goals is to participate in your employer’s retirement plan. Funds are taken out pre-tax (and/or after tax with Roth contributions), and if your employer matches contributions, that’s free money for you; money you are leaving on the table if you don’t participate. If you are able, maximize your contributions each year.

This is one of the easiest steps to take to help increase the amount of money you’re saving. For tax year 2021, the maximum contributions to 401(k)/403(b) plans is $19,500, while the combined employer and employee contribution for 2021 is $58,000. Beginning at age 50, you can start making extra contributions to your tax-sheltered retirement accounts. For tax year 2021, you can make up to $6,500 in catch-up contributions, increasing the maximum contribution to $26,000.

If you have an IRA, you also can make contributions of up to $7,000 once you become 50. It should be noted that the contribution limits for traditional IRAs and Roth IRAs overlap. If you are 50 or older, you can contribute a total of $7,000 per year split however you want between traditional and Roth IRAs. However, the limits between 401(k)/403(b) plans and IRAs do not overlap, so you can max out your contributions for both types of accounts in the same year.

Several savings accounts (retirement or otherwise) offer a catch-up contribution. The IRS lists them all on its website.

What are the Benefits?
Making regular catch-up contributions from age 50 until you decide to retire could have a significant effect on your retirement. In an example from MarketWatch, if you make $6,000 in additional yearly contributions to your company retirement plan starting in the year you turn 50, and continue to do the same for the following 15 years, through age 65, here is how much extra you could accumulate by age 65 in your plan (rounded to the nearest $1,000):

  • 4% annual return: $131,000
  • 6% annual return: $154,000
  • 8% annual return: $182,000

Furthermore, catch-up contributions don’t just help you save more for retirement; they also help you reduce your tax bill. When you save money in a traditional retirement plan, it does not require you to pay taxes on those contributions. By adding in catch-up contributions, you are lowering your taxable income even more.*

How to Make Catch-Up Contributions

If you want to make catch-up contributions, the first thing you need to do is see if you can afford to make them. Most workers are not maxing out their retirement accounts each year, let alone making catch-up contributions. You still need to pay daily living expenses, so make sure you can afford to take advantage of contributing more to your retirement.

Once you have determined you can make catch-up contributions, talk to your employer to confirm the extra deduction from your paycheck. If you are contributing to an IRA, keep track of the catch-up contribution limit for that year so you can make those extra deposits to your retirement account with no problem.

Also, be aware that the contribution deadline for many retirement accounts is the last day of the calendar year. But don’t wait until then. Have the increased contribution deposited in your retirement account through your normal payroll deduction process throughout the year. January of the year you turn 50 is a great time to start the increased deduction if you can afford it.

Don’t Wait to Get Started
Do everything you can to take advantage of catch-up contributions to increase your retirement saving power. They can be crucial whether you are just starting to save for retirement in middle age or if you need to rebuild retirement savings at mid-life. They may make a significant difference for your savings effort. Even a decade of “super saving” for retirement can make a world of difference! ☼

Please consult your financial adviser before you make any changes to your retirement plans. For more information on catch-up contributions, contact Christian Brothers Retirement Planning Services at or call 800.807.0700. Furthermore, catch-up contributions don’t just help you save more for retirement; they also help you reduce your tax bill.


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